Question

1. Suppose that you are working for the Ministry of Justice and your boss asks you to research the possible impact of years of education on salaries.

1. Write down the regression model which will be able to investigate this relationship. Clearly indicate x and y and show in your model which variable is x and which variable is y.

2. Running the above regression will return estimates of B, and Ba. Based on your economic background, your general knowledge and your intuition, what do you expect the signs of your estimates to be? Explain why you expect those signs?

3. Draw a graph presenting the relationship between x and y, based on your expectation of the signs for Bi and Ba.

Now suppose that your econometrics give you the following results:

	Coefficient	Standard Error
Constant	45.32	10.65
Education	10.32	3.35

N= 42

4. Interpret the coefficient on. What does the above result imply for the salary of the people who have no education?

5. Does the above regression uncover the ceteris paribus effect of education on salaries. Why or why not?

Answer 1